Commonwealth Bank Shares Fall 5% Amid Margin Pressure and Rising Costs

Commonwealth Bank of Australia (CBA) shares tumbled nearly 5% on Tuesday after the nation’s largest lender reported shrinking margins driven by fierce competition and lower interest rates, despite posting a modest rise in quarterly profit.

CBA recorded a cash profit of A$2.6 billion ($1.69 billion) for July–September, up 1% from the previous two quarters and 2% higher than a year earlier. However, the bank’s update highlighted ongoing pressure on its net interest margin (NIM), weighed down by deposit competition and the lower cash rate environment. While CBA did not disclose the exact NIM figure, it noted that underlying margins declined slightly due to customers switching deposits and rapid growth in lower-yielding liquid assets, including a A$10 billion rise in institutional deposits.

Operating expenses climbed 4%, driven by higher wages and technology investments. The bank, which holds about 25% of Australia’s A$2.2 trillion mortgage market, reported home lending growth of A$9.3 billion and a surge in household deposits of A$17.8 billion during the quarter.

Investors reacted negatively to the update, with CBA’s stock dropping to a four-week low of A$166.31. Analysts, including Ord Minnett’s John Milroy, noted that the bank’s valuation remains steep compared to global peers. “Not stating the net interest margin leaves room for speculation on the extent of the reduction,” Milroy said, adding that some investors are shifting toward relatively cheaper Australian banks such as ANZ and Westpac, which rose about 1.3%, while National Australia Bank slipped 0.8%.

CBA remains one of the world’s most expensive banks, with price-to-earnings and price-to-book ratios more than double the global average. CEO Matt Comyn said the bank is closely monitoring competitive pressures and will adjust its strategy as needed. The lender also set aside A$220 million in loan loss provisions, with overdue home loans at 0.66% and problem business loans at 0.94%.